AL'S CORNER

AL Hursey

Past President - Transportation Club of St. Louis

ahursey@giltner.com      618-795-3672

Transportation Club of St. Louis
Horse Hooky on July 17, Freights Rates Way Up

   
Welcome to the July 2018 “Al’s Corner” note or is commonly known as “the monthly note nobody ever reads!”  Just kidding a few people read it, some even in China rumor has it, so this is a Global note.   I am shooting for Viral and hit the big time!  Now I feel better.
  
The big event for July is the laid back, fun, and hopefully profitable $$$$$ Horse Hooky.  The races start at 1 PM, but I will be there to gain an edge around noon.  Entry is $1.50, with $1 hotdogs, $1 soda, $1.50 draft beer (almost free and gives you extra cash to win).  I have a new strategy this year that I will be using that will guarantee success.  I can’t discuss this cutting-edge angle right now as it might be pirated, and used by others, thus reducing our take home $$$$Beware though I have only had moderate success over the years!!!
  
This month’s transportation discussion is about the rising rates of the trucking industry, and how we got here!
For those of you that are not in the industry, or a novice, the rates have skyrocketed and are affecting everything we eat, use and so on.  I have been in the business of transportation shipping for nearly 40 years, and these times are unprecedented.   In my opinion, the rates have gone up 40% since October 2017.  Why is it different now and why will rates probably not be going down soon?  In the past when the rates went up carriers started adding more drivers and equipment to hopefully make more.  Now they have trouble finding more drivers.   In the past people and families drove trucks like their dad or uncle did, not so much now.  But over the past 20 years undesirable conditions made driving less attractive to younger people (it can be a hard lifestyle), and low driver pay made it worse.   For many companies the need and push for lower freight costs was unquenchable.  Some plants, warehouses, grocery warehouses, and large distribution centers have been notoriously slow in loading and unloading.   These locations many times were inconsiderate of the carriers and drivers time or inconvenience.   Not all shippers or warehouses were like that.  Overall these low rate times were commonly called “shippers” markets, which is shipper friendly freight rates and control.    These trends came and went every few years but 7 out of 10 were mostly shippers (reasonable freight rates) markets.   Many manufacturers are now fighting these rising costs by reducing the size of their packages.
 
NOW, TODAY.  Many like to think it is mostly the economy being so strong that has been the big difference.  Its not, though it is part of it.  The biggest thing is the mandatory driver E-Log devices that tracks a driver’s hours of service that they can legally drive or been on the job.  This reduced drivers service hours or use.   It used to be hours were counted when they were driving, now it is when they are on the clock, which includes sitting.  So, “RATES PER MILE” became more “USE PER DAY.”  So, this reduced the available equipment across the board nationally by, I would guess, 10-20%.  So, the market had the same amount of trucks, but they could now do much less driving.  Perhaps the biggest upturn in rates is on shorter runs as the driver still must load, drive, and unload.  Example-- so a 200-mile run can be $4-$5 per mile, takes all day, and becomes a USE PER DAY rate.  To compound things, Older drivers are retiring and are not being replaced as fast as the ones that are leaving.  Some feel that the driverless trucks will solve much of this.  I doubt it, at least not soon, but it will some.  Another issue has a rose because of the E-Log restrictions.  “Just in Time” shipping has now become a real mess with terrible freight costs.   These restrictions took the hard runners (some illegal) out of play.   Safety first, just in time second.
 
The increase in home delivery, or nearly everything being delivered has had a big effect (more drivers needed).   

Solutions------Is there hope that this big downturn will change soon?  Yes, but it should be tempered.

For me I don’t like to guess about things, but I have been studying what is going on with freight rates (Use PER DAY Rates) and I believe some relief will occur in the next 5 years.   I doubt they will ever be at the historic lows like they used to be though.  Big money is being made by the surviving carriers out there that fought, and struggled, during the low-price trend for many years.  I think rates will stabilize some because I have a good idea what it takes for a carrier to make a good profit.  These things can be figured out easily and thus it should pull more people into the business.  Competition drives rates down.

Add in creative things like getting drivers home more often, considerate warehouses and shippers and such will also help.   If the shippers and warehouses improve on their loading and unloading times dramatically more capacity will be available (BIGGEST IMPACT).  
 
Times will continue to be tough for a while, but some solutions I mentioned could help,

Thanks, and have a great month,

AL Hursey, Giltner St. Louis